Friday, July 11, 2008
Members of the Senate Finance Committee have agreed in principle to loosen the strict limits on "partial gifts" to museums, in which collectors claim tax deductions for donating artwork in increments to museums even though the art may remain in the donors' private homes.
In making a partial gift, a donor gives a percentage of interest in an artwork to a museum, receiving a tax deduction for an equivalent percentage of the work’s value. The museum has the right to exhibit the artwork for a period of each year proportionate to the interest it owns, but, in reality, the art rarely enters the museums.
The practice of "partial gifts" was common until almost two years ago, when Senator Charles E. Grassley added provisions to the Pension Protection Act of 2006 requiring donors to turn over both the artwork itself and full ownership within ten years of donating the first part. Because art tends to appreciate in value after being displayed in museums, another provision capped the deduction at the value prevailing when the donor gave away the first fraction or subsequent fractions, whichever was lowest, to limit the amount of tax deductions available.
However, The New York Times reports that it now appears that Senator Grassley is willing to allow donors to claim deductions for subsequent donations that reflect increases in the value of the portion of the artwork they still own. Many of the proposed changes would impose greater accountability on donors, such as requiring that all partial gifts be subject to binding written contracts to prevent heirs from reneging on the gifts after a donor’s death.
The changes could be attached to tax-related legislation sometime next week or as an independent bill.